Realizing the Value of FDA-Approved Therapies

* This is the projected full cost; plans generally would not pay 100%.

Source: 2006 Milliman Health Cost Guidelines

The preceding table offers examples of choices available to payers. For example, a payer could almost offset the entire projected cost increase for innovative therapies ($9.80 PMPM) by removing coverage for chiropractor and podiatry, perhaps shifting these benefits into a flexible spending account. The reader should note that some of the above benefits may be subject to state mandate regulations for policies issued through HMOs or insurance companies and, if so, coverage may be required as part of an insurance policy.

Benefit managers can also adjust cost sharing to control costs. The following table compares some simple cost sharing changes to the increased costs of innovative therapies:

* This is the projected full cost; plans generally would not pay 100%.

Source: 2006 Milliman Health Cost Guidelines

The tables in this section show choices that benefit managers have to keep their benefits current with changing technology while controlling costs.

Progressive Versus Regressive Benefit Designs

The following examples illustrate how two actuarially equivalent benefit designs can cover innovative therapies. Two different benefit designs are actuarially equivalent if, across a broad population, the expected cost of both benefit designs is the same.

Using established actuarial methods; the authors present the following 2011 actuarially equivalent prescription drug benefit designs. For each benefit design, we show the cost sharing for a member requiring a $1,500 per month ($18,000 per year) innovative therapy (assumed to be in the 3rd Tier in all designs):

Providing for Catastrophic Costs in a Stand-alone Prescription Drug Program
Plan	Benefit Design	Actuarial Equivalence	Annual Cost Sharing for Therapy Costing $1,500 per Month
A	Tier 1: $15 Copay Tier 2: $30 Copay Tier 3: $50 Copay		$600
B	Tier 1: $15 Copay Tier 2: $30 Copay Tier 3: 25% Coinsurance		$4,500
C	Tier 1: $10 Copay Tier 2: $20 Copay Tier 3: $40 Copay		$480
D	Tier 1: $10 Copay Tier 2: $20 Copay Tier 3: 20% Coinsurance		$3,600

In the above table, plans A and B are actuarially equivalent to each other, as are plans C and D. The payer with plan A can afford to pay more for the catastrophic benefit than with plan B, because plan A's members have slightly higher cost sharing for many products relative to plan B. Likewise, in plan C, the $40 copay will require some people to pay more than the 20% coinsurance in plan D for some drugs and subsidize the few people who need the innovative therapy. There are an unlimited number of pairs of similar "equivalent" benefit designs. /5

Similar choices apply to benefits where innovative therapies are covered through a medical benefit as opposed to a stand-alone prescription drug benefit. In the Appendix, we show the case of a comprehensive major medical plan with an inpatient per-day copay, a hospital outpatient per-case copay and coinsurance or copay for other services. The limit on member cost sharing ("out-of-pocket" expenses) drastically affects the payments made by the member.